On 15 June 2020, Ukrainian Government submitted draft law No. 3658 “On the Amendments to Certain Laws of Ukraine on the Improvement of Support for the Production of Electricity from Alternative Energy Sources” (“Draft Law”) for consideration by the Ukrainian Parliament. The Draft Law aims at implementing the provisions of the memorandum signed between Ukrainian Government and certain renewable energy producers (“RES Producers”).
The Draft Law reduces the “feed-in tariff” (“FIT”) for all solar and wind producers. The National Energy and Utilities Regulatory Commission will apply decreasing coefficients to the FIT fixed under the applicable legislation. You may access the table indicating decreasing coefficients by clicking here.
The Draft Law introduces a cap on the FIT for all RES Producers commissioned before 30 June 2015 in amount of EUR 0.2197 per 1 kWh.
Liability for Imbalances
The RES Producers will be required to reimburse for the imbalance settlement cost, as follows:
- 50% – from 2021; and
- 100% (full liability) – from 2022.
The liability for imbalances will not apply if the RES Producer does not exceed a permitted volume of deviations – in its actual hourly volume output – from the forecast schedules. The permitted volume of deviations amounts to 10% for wind projects and 5% for solar projects.
Under the applicable legislation, the cost of curtailed electricity (i.e., when the RES Producer is obliged to dispatch electricity below the maximum possible output) must be compensated to the RES Producers. At the same time, it is silent on the procedure for such compensation, in particular on who is obliged to compensate the RES Producers for losses caused by the curtailment. The Draft Law provides that (i) the Transmission System Operator (i.e., Ukrenergo) must compensate the RES Producers for the amount of curtailed electricity under the FIT rate established for each respective RES Producer, and (ii) the National Energy and Utilities Regulatory Commission must elaborate a methodology of such compensation within a month after enactment of the Draft Law.
The Draft Law introduces stabilisation clauses to protect the RES Producers against changes introduced after the Draft Law enters into force. In particular, the State guarantees that:
- there will be no further changes to the FIT support system for the entire term of the FIT support; and
- starting from 1 July 2020 and until 31 December 2029, there will be no further changes to the FIT rates that would entail losses or damages, including a loss of legitimately expected revenues by the RES Producers benefitting from the FIT.
Under the applicable legislation, all RES Producers willing to benefit from the FIT must enter into the balancing group of the Guaranteed Buyer and sell all produced electricity to the Guaranteed Buyer. The Draft Law provides that, within three months after enactment of the Draft Law, the Government must elaborate amendments to the legislation allowing the RES Producers to exit the balancing group of the Guaranteed Buyer, freely sell electricity at the market and be compensated for the difference between the FIT and the market price.
The Draft Law may significantly affect the project finance and M&A deals in the Ukrainian renewable sector. In this regard, we recommend to review the terms of your deals to identify, analyse, and mitigate possible risks and implications resulting from the Draft Law.
Posted on June 19, 2020